Opening the Corporate Dealmaker's Forum at the Union League Club Tuesday is moderator Robert Filek, a partner in transaction services at PricewaterhouseCoopers.
The first panel evaluated current market conditions and answered some pressing questions:
- How will PE firms get through the logjam of deals awaiting financing?
- What are the near- and medium-term prospects for acquisitions and divestitures by strategics?
Helping to asses the current deal state were panelists Charles Carmel, director of corporate business development at Cisco Systems Inc.; Honeywell International Inc.'s Anne Madden, vice president of corporate planning and development and global head of M&A; Richard McPhail, Home Depot Inc.'s VP of strategic business development; and Citigroup Inc. managing director Christina Mohr.
To start the discussion, Filek asked: Where is the deal market? “With the exchange rate, other countries are seeing America as almost on sale,” he said. Filek also noted that corporates are taking advantage of the PE hiatus.
Mohr agreed the subprime market woes are affecting dealmaking. She said first, you have to understand corporate loans. Given $4 trillion of LBOs, in 2002 5% of CLOs included subprime loans, and in 2006 it was 80%.
Home Depot's McPhail said he pursued a sale of HD Supply and attracted mostly financial buyers. They signed an agreement in mid-June with Carlyle Group and Bain Capital LLC, a $10.3 billion deal. It closed for $8.8 billion in mid-August because in late July the credit markets went on vacation, putting the deal in question.
McPhail's advice:
“Make sure your lawyers get the MAC clause right; that essentially became the linchpin of holding the deal together.”
“Counterpoint to the MAC clause [is] the breakup fee. When dealing with a consortia — you need one line of communication. If you sell to PE, make sure you have a due diligence machine behind you.”
Filek then mused if the PE folks are tied up with financing issues, is the advantage to the strategics?
McPhail said: Before the market collapse, leveraged finance was robust, so a lot of capital forcing deals. Who knows how long private equity will be trickling? McPhail believes corporates need to do deals while PE is down. “Strategics offer better speed, pricing in this market,” he said.
Cisco's Carmel noted that PE and technology have been better intersecting in the past five years. Cisco has done around 123 acquisitions. "The change in the credit markets has had relatively no impact in our deals,” Carmel said, noting that they don’t deal with private equity. "PE looks for broken companies," Carmel claimed.
Filek then focused the panel on international opportunities.
Honeywell's Madden said, "We do see that. Lots of growth opportunitites in China and India, risky deals over there — biggest competitors are public markets." Madden also noted the timetable for overseas deals is 2 to 4 times that of Western deals. "Rich folks are already there — now you have to push an angle, whether it’s your brand, tech., etc." — Baz Hiralal
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